May 15, 2017

While Genting (GENS)’s share price has rallied by over 40% since our upgrade to BUY in August last year, we believe the rally can be sustained. Our view is underpinned by expected positive newsflow including continued recovery in earnings, details of GENS moving towards a more efficient capital structure, refresh of Resorts World Sentosa, and bid for a Japanese casino next year.

Consensus has a HOLD recommendation on GENS given concerns about the sustainability of its earnings recovery. We differ in this as GENS has been able to grow its earnings despite VIP rolling chip and mass business volumes still soft, through the successful execution of its cost reduction initiatives as well as lowering its bad debts given the implementation of a more selective and conservative credit policy last year. This structurally lower cost base provides a strong platform when volumes eventually bounce.

Despite the recent rally, GENS still offers compelling value, as it trades at 10.1x FY17F EV/EBITDA, which is in line with –1SD of its mean of 10.1x. In addition, it trades at a c.30% discount to its Macau peers on an EV/EBITDA basis which is close to -1SD of its mean EV/EBITDA differential. With earnings turnaround and the potential of winning the Japanese casino bid in the medium term, we believe GENS can re-rate closer to its average EV/EBITDA multiple of c.13x.

On the back of a better than expected results, we Maintain BUY and raise our DCF-based TP to S$1.35 from S$1.20. Our valuation excludes any Japan casino. –DBS

Genting closed at: S$1.150